Method of Doing Business for Auctioning a Defaulted Loan

ABSTRACT

A method of doing business includes identifying an owner of property willing to sell his property by an online auction, entering into a contract with the owner obligating him to complete the sales of his property conducted pursuant to terms of the contract; pre-arranging a minimum auction price for his property that accounts for the owner&#39;s interest, plus costs and fees, conducting the on-line auction with a plurality of bidders for his property whereby at the on-line auction&#39;s conclusion there is a winning bidder and ensuring the transfer of the winning bidder&#39;s funds to the escrow holder.

This is a continuation-in-part of a provisional patent application filedJul. 7, 2007 under Ser. No. 60/958,887.

BACKGROUND OF THE INVENTION

1. Field of the Invention

The present invention relates to a method of doing business forauctioning a defaulted loan. The present invention relates generally toa method for assisting an owner of a promissory note in default and moreparticularly to a method for assisting said note owner including thesteps of selling said defaulted note by means of an auction using aninternet web portal as an auction site.

2. Description of the Prior Art

U.S. Pat. No. 7,213,001, teaches a method for restructuring a debt of adebtor who has an interest in a distressed property by a third party.The method includes the steps of comparing a present appraised value ofthe property to a total cost for purchasing the property from the debtorby the third party, satisfying the personal debt of debtor by the thirdparty, and reselling the property back from the third party to thedebtor based upon a present appraised value of the property, and if thepresent appraised value of the property exceeds the total cost to thethird party by a pre-selected value then the third party purchases theproperty from the debtor, satisfies the personal debt of the debtor andresells the property back to the debtor at the present value of theproperty.

The vast majority of homes purchased are purchased on a the basis ofloan instrument which includes a promissory note that specifies aprincipal amount borrowed from a lender and an interest rate, and issecured by a mortgage or deed of trust on the property. The promissorynote establishes the borrower's obligation to make periodic payments tothe lender and the mortgage or deed of trust establishes the lender'sright to foreclose on the property in the event the borrower fails tomake the scheduled period payments.

When a person or entity borrows money from a lender, the borrower mustsign a promissory note promising to repay the home loan and a mortgagenote (or deed of trust) to serve as collateral for the loan. The bearerof such notes has a legal claim to the underlying property until thebearer is paid in full. To insure a continuous supply of availablefunds, the lender will often sell groups of notes (mortgage loans) toinvestors. This selling of mortgage loans to investors is referred to asthe secondary mortgage market.

Under most circumstances, the borrower completes the loan obligation bymaking a lump sum payment before the end of the period to satisfy theloan. However not all borrowers can consistently make loan payments.Often times an acute event or circumstance may cause the borrower tostop making payments. Any number of unforeseen financial hardships maycause the borrower to suddenly stop making payments and default on theloan.

As a result of the borrower's default the lender may foreclose on theproperty. Foreclosure is a legal process by which the lender willultimately obtain title in property and resell the property. From theborrower's perspective foreclosure is traumatic both from a financial aswell as emotional standpoint. From a financial standpoint, the borrowernot only loses the equity which has been established in the property buteven after the property has been foreclosed continues to suffer in thesense that the borrower's credit has been irrevocably damaged. From thelender's perspective, foreclosure is also undesirable. The foreclosureprocess is costly and thus further increases the lender's interest in analready distressed property. In addition, unless the ultimate sale priceof the home after foreclosure is at least equal to the original value ofthe home the lender's return may be compromised. Prior to foreclosure orsubsequent thereto the borrower may file for bankruptcy. Ultimatelyhowever the result is the same in that the bank will foreclose on theproperty once the payment schedule has not been met. Accordingly,foreclosure and its resultant hardships discussed above are not avoidedby the borrower filing for bankruptcy. Moreover, by filing forbankruptcy, the borrower's credit will likely be damaged to point whereobtaining any future loan will be extremely difficult thereby preventingthe homeowner from purchasing a future home.

From the lender's perspective, bankruptcy is also not a desirablealternative since bankruptcy is a complicated legal proceeding and hasassociated legal fees and costs and, most importantly, a delay in thecollection of the loan.

In view of the above it is desirable to seek techniques that wouldensure payment of the loan to the creditor without the need to rely uponeither foreclosure and/or bankruptcy proceedings.

U.S. Pat. No. 5,966,699 teaches a computer system that conducts anelectronic loan auction over a computer network such as the Internet.The computer system includes a computer connected to the Internet, whichperforms the following functions of receiving an electronic loanapplication form from a prospective borrower, providing such applicationto a loan authorizer's computer over the computer network for approval,receiving an electronic message from the loan authorizer's computerindicating whether or not such loan has been approved, entering the loanapplication into a database that is accessible to lenders via thecomputer network, if the loan is approved; and maintaining the loanapplication in the database for a predetermined period time during whichlenders may submit bids and the borrower may accept a bid.

U.S. Pat. No 7,127,406 teaches an apparatus and method implements,manages and tracks on-line digital transactions via an escrow, includingopening, servicing, real-time or near-real time status of the broker, atitle company, lender, vendor, buyer and seller, and closing of anescrow via a medium such as the internet. Multiple access methods areemployed. The present invention provides computerization and internettype process implementation for escrow processes including, but notlimited to, digital transaction coordination, digital statuscoordinators, seamless escrow transactions, on-line digital signatures,video signature authentication, digital certificate authentication,signature authentication, satellite and other wireless transmission ofescrow transactions, voice digital instruction, the merging of voicewith digital data transactions, set-top/web-TV digital escrowtransmission, global digital escrow networking, and the like. The systemincludes appropriate data, application, and servers along withsupporting LAN or WAN-based application to perform escrow services. Themethod of doing business in realty uses on-line communications andincludes the steps of providing an on-line escrow account for parties toa transaction; providing on-line transactional account managementservices with respect to the on-line escrow account for the parties; andproviding secure access to the on-line escrow account limited to theparties and third parties using on-line identification authentication.The system includes the use computerized devices and communicationdevices connected to the Internet which performs receiving instructionsfor the opening of an escrow; providing and sending digital instructionsto all parties involved in the transaction; offering the availability ofa continuous digital escrow transaction by coordinating and permittingaccess to the on-going status of an escrow in progress; on-line digitalsignature, voice, video fingerprint or retina scanning personalidentification authentication; transfer of funds or other consideration;submission of loan documents; closing escrow, delivering clear title,and release of transaction funds; and the like as would be useful in anescrow transaction.

U.S. Pat. No. 7,069,234 teaches a method of initiating an agreement inan e-commerce environment. Across the many ‘exchange of value’ sites,there are three prevalent selling models: seller-centric, buyer-centric,and auction. The seller-centric model is the most common. In itssimplest form, a company typically provides information about theirproducts and gives the customer the ability to place orders. Moreadvanced implementations use electronic means for supporting the entiresales and support process including: marketing, product display,merchandising, customer needs assessment, order processing, and manyother activities. In most seller-centric solutions, the infrastructureis created and maintained by the merchant. The customer needs nothingmore than a browser and/or access to the site.

In a buyer-centric solution, the main focus is on customer or buyertrying to fulfill a need for a product. In contrast to Seller-Centricsites which offer products, a buyer-centric site displays items thebuyer would like to purchase—in effect trying to lure sellers. Many ofthe same capabilities as seller-centric sites are needed such as ordermanagement and payment capabilities. In this case, the customer joins orcreates an infrastructure focused on fulfilling his needs. Theinfrastructure typically provides an environment between the tradingpartners which promotes browsing and comparing products, orderingproducts, fulfillment, payment, and any needed customer supportservices. A concentration should be placed on the ease of transactionsand information flow. For this reason, sellers may customize theirproduct line to the buyers' specific needs. In a buyer-centric case thebuyer provides the bulk of the eCommerce infrastructure. Additionalintegration and setup mayor may not be required for each trading partnerwho wishes to participate. Implementations requiring sellers tospecially configure or integrate their own systems in order toparticipate are usually only successful where the buyer has substantialmarket power in the relationship, as in GM or Ford in buying parts fromtheir suppliers. In such cases, agreements must be made as to whatinformation is to be shared, how to model the information, the standardsfor messaging and communication, and what technologies will be used.Besides the mechanical hurdle of integrating multiple systems and thesomewhat immature state of the software products to date, convincingtrading partners to adopt an Internet commerce approach can also be verydifficult. If one is not a particularly big or powerful buyer, it can bedifficult to attract potential sellers to come to one's site and spendthe time necessary to learn about one's needs. This requires sellers toengage in a very different activity than they have traditionallyperformed and many are not eager to change their way of doing businessfor a relatively small customer.

This section of the market has been slower to emerge. As mentionedabove, trading partner maintenance is a key issue. Companies at the endof the hub must buy into the hub's practices and vision. Future visionand direction are also important. As changes are implemented, alltrading partners have to move together.

Getting buy in from all partners has the potential to slow down theadoption of new technologies and process innovations which over time canlead to a lack luster lowest common denominator approach. Broker orauction type solutions are also emerging, albeit more slowly. Brokerimplementations don't typically sell their own goods, but rather providean eCommerce environment to facilitate bringing multiple buyers andsellers together. Both buyers and sellers can utilize the broker's siteand infrastructure rather than developing and maintaining their owneCommerce capabilities. In this case, a broker has set up theinfrastructure needed to buy and sell goods. The infrastructure will bevery similar to a seller-centric solution with the addition ofcomponents needed to register goods to be sold (or in a buyer-centrictwist—register request for quote), price negotiation and bidding andreconciliation services. A Trading Network is an excellent businessexample of a broker site. Users of the TN can issue Request for Quote's(RFQ'S) on the trading network. The request could be for raw materials,components, or finished items. Suppliers are free to answer a requestfor a quote providing they meet some basic guidelines and requirements.The network provides a true win--win relationship. Since the network canbe global, suppliers the purchaser may never have known about are freeto participate. Another example on the consumer side is a sales website.Such a site offers a variety of computer, electronic and fitness goodsas well as a general merchandise auction. Customers can browse items inorder to view product information and their current bid prices.Interested buyers can place a bid online and see how their bid pricecompares with others. The auctions are time based and follow a detailedbidding process. As customers are out bid, they are notified via emailand have the option to reply with a counter bid.

SUMMARY OF INVENTION

The present invention is generally directed, a method of doing businessthat includes steps of identifying an owner of property willing to sellhis property by an online auction, entering into a contract with theowner obligating him to complete the sales of his property conductedpursuant to the terms of the contract, pre-arranging a minimum auctionprice for his property that accounts for the owner's interest, pluscosts and fees, conducting the on-line auction with a plurality ofbidders for his property whereby at the on-line auction's conclusionthere is a winning bidder and ensuring the transfer of the winningbidder's funds to the escrow holder.

The first aspect of the present invention is identifying a plurality ofowners of a plurality of properties each of which are willing to sell atleast one of their respective properties by an online auction andentering into contracts with the owners obligating them to complete thesales of their property conducted pursuant to the terms of the contract.

The second aspect of the present invention is pre-arranging a minimumauction price for his property that accounts for the owner's interest,plus costs and fees and conducting the on-line auction for the propertyof one of the owners with a plurality of bidders for his property.

In a third aspect of the present invention, the property is a securedpromissory note and the method includes the step of arranging for thedelivery of the secured promissory note.

In a fourth aspect of the present invention, the method also includesthe steps of placing on the auction's Portal relevant information aboutthe secured promissory note and related documents and limiting biddingto bidders who have proven resources to complete the transaction.

Other aspects and many of the attendant advantages will be more readilyappreciated as the same becomes better understood by reference to thefollowing detailed description and considered in connection with theaccompanying drawing in which like reference symbols designate likeparts throughout the figures.

The features of the present invention; which are believed to be novel,are set forth with particularity in the appended claims.

DESCRIPTION OF THE DRAWINGS

FIG. 1 is a block diagram of the three elements, Lender, Bidder andTransaction, respectively of an On-line Loan Auction Flowchart accordingto the first embodiment of the present invention.

FIG. 2 is a block diagram of the Lender element of the On-line LoanAuction Flowchart of FIG. 1.

FIG. 3 is a block diagram of the Bidder element of On-line Loan AuctionFlowchart of FIG. 1.

FIG. 4 is a block diagram of the Transaction element of the On-line LoanAuction Flowchart of FIG. 1.

FIG. 5 is an On-line Loan Auction Flowchart of FIG. 1.

DESCRIPTION OF THE PREFERRED EMBODIMENT

Referring to FIG. 1 the first embodiment of an On-line Loan AuctionFlowchart 10 is shown as a block diagram. The block diagram consists ofa Lender element 11, a Bidder element 12 and Transaction element 13.

Referring to FIG. 2 in conjunction with FIG. 1 the Lender element 11includes a first step 21 is to seek Lenders who are willing to auctionloans on web portal, a second step 22 is to enter into a contracts withlenders to auction loans and a third step 23 is to enable lenders toenter loan data into an on-line auction system. In the first steps 21property owners who are willing to sell their property by an onlineauction are identified. In the second steps 22 property owners enterinto contracts. The terms of the contract obligates them to completesale of their respective properties. The Lender element 11 may alsoincludes the steps of pre-arranging a minimum auction price for eachproperty that accounts for the property owner's interest, attendantcosts and fees and conducting an on-line auction with a plurality ofbidders for each property.

Referring to FIG. 3 in conjunction with FIG. 1 the Bidder element 12includes a first step 31 of seeking bidders to register to bid on loans,a second step 32 of having potential bidders register to bid on loans, athird step 33 to market defaulted loans and a fourth step 34 to allowregistered bidder to bid on loans.

Referring to FIG. 4 in conjunction with FIG. 1 the Transaction element13 includes a first step 41 of reviewing bids submitted by approvedbidders, a second step 42 of selecting winning bid, a third step 43 ofinforming winning bidder and a fourth step 44 of having winning bidderwire transfer funds to cover his winning bid. The Transaction element 13also includes a fifth step 45 of opening escrow, a sixth step 46 ofdistributing auction proceeds to lender and a seventh step 47 oftransferring loans title to winning bidder. At the conclusion of theauction there is a winning bidder. The method further includes the stepof ensuring transfer of funds from the winning bidder to the propertyowner.

Referring to FIG. 5 in conjunction with FIG. 1, FIG. 2, FIG. 3 and FIG.4 the On-line Loan Auction Flowchart 10 is shown in context andintegrates the Lender element 11, Bidder Element and the Transactionelement 13.

In a second embodiment a method of doing business includes steps ofidentifying property owners willing to sell their property by an onlineauction and entering the property owners into contracts. The terms ofthe contract obligates them to complete sale of their respectiveproperties. The method also includes the steps of pre-arranging aminimum auction price for each property that accounts for the propertyowner's interest, attendant costs and fees and conducting the on-lineauction with a plurality of bidders for each property. At the conclusionof the auction there is a winning bidder. The method further includesthe step of ensuring transfer of funds from the winning bidder to theproperty owner.

The property is a secured promissory note. The method still furtherincludes the steps of arranging for delivery of the secured promissorynote to the winning bidder through a licensed escrow holder; placing onan online web site or portal, relevant information about said auctionand the secured promissory notes and supporting documents and limitingbidding to only those bidders with proven sufficient resources tosuccessfully consummate the auction.

In a third embodiment a method doing business includes the steps ofidentifying owners of secured promissory notes willing to sell theirsecured promissory notes by an online auction and entering the ownersinto a contract the terms of which obligates them to complete the salesof their respective secured promissory notes. The method also includesthe steps of pre-arranging a minimum auction price for the securedpromissory note that accounts for the secured promissory note owner'sinterest and contracted costs and fees, placing on the auction portalrelevant information about the secured promissory note and relateddocuments and limiting bidding to bidders who have proven sufficientresources to complete the transaction. The method further includes thesteps of conducting an auction for the secured promissory note wherebyat the auction's conclusion there is a winning bidder, arranging for thedelivery of the original secured promissory note, its securityinstrument (trust deed or mortgage), the documentation supporting thevalue of security of the secured promissory note (appraisal), andevidence of ownership (title insurance) to a licensed escrow holder, whoat the conclusion of the auction, will deliver evidence of ownership ofthe original secured promissory note and related documents to thewinning bidder and the appropriate proceeds to said note owner andensuring the transfer of the winning bidder's purchase funds to theescrow holder.

In a third embodiment a method of doing business includes the steps ofidentifying a plurality of owners of a plurality of properties, each ofwhich being willing to sell at least one of their respective propertiesvia online auction, entering into contracts with the plurality of ownersobligating them to complete the sales of their respective property'sconducted pursuant to the contracts' terms and pre-arranging a minimumauction price for their respective properties that accounts for interestof the respective owner's, transaction costs and fees. The method alsoincludes the steps of conducting a plurality of on-line auctions for aplurality of properties with a plurality of bidders for the owners'properties. The property is a secured promissory note. The method mayfurther include the step of arranging for the delivery of evidence ofownership of each secured promissory note to the respective winningbidder. The method may still also includes the steps of placing on theauction portal relevant information about the secured promissory noteand related documents, limiting bidding to bidders who have provenresources to complete the transaction and the step of holding andcompleting the auction for a defaulted secured promissory noteimmediately preceding the foreclosure, trustee, marshal, judicial or anyother court ordered sale of the note's underlying security.

In the fourth embodiment a method of doing business includes identifyingan owner of property willing to sell his property by an online auction,entering into a contract with the owner obligating him to complete thesales of his property conducted pursuant to terms of the contract;pre-arranging a minimum auction price for his property that accounts forthe owner's interest, plus costs and fees, conducting the on-lineauction with a plurality of bidders for his property whereby at theon-line auction's conclusion there is a winning bidder and ensuring thetransfer of the winning bidder's funds to the escrow holder. A firststep is to identify a plurality of owners of a plurality of propertieseach of which are willing to sell at least one of their respectiveproperties by an online auction and to enter into contracts with theowners obligating them to complete the sales of their property conductedpursuant to terms of the contract. A second step is to pre-arrange aminimum auction price for his property that accounts for interest of theowner, plus costs and fees and to conduct an on-line auction for theproperty of one of the owners with a plurality of bidders for hisproperty. The third step is to arrange for the delivery of the securedpromissory note. The fourth step is to place on the auction's portal,relevant information about the secured promissory note and relateddocuments and to limit bidding to bidders who have proven resources tocomplete the transaction.

In summary the method includes a first step of the method is identifyinga plurality of owners of a plurality of properties each of which arewilling to sell at least one of their respective properties by an onlineauction and entering into a contract with the owners obligating them tocomplete the sales of their respective properties conducted pursuant tothe terms of the contracts and a second step is pre-arranging a minimumauction price for his property that accounts for interest of the owner,plus costs and fees and conducting an on-line auction for the propertyof one of the owners with a plurality of bidders for his property. Themethod also includes a third step of the method is arranging for thedelivery of the secured promissory note and a fourth steps of the methodincludes placing on the auction's Portal relevant information about thesecured promissory note and related documents and limiting bidding tobidders who have proven resources to complete the transaction.

From the foregoing it can be seen that a method of doing business hasbeen described. It should be noted that the sketches are not drawn toscale and that distances of and between the figures are not to beconsidered significant.

Accordingly, it is intended that the foregoing disclosure and showingmade in the drawing shall be considered only as an illustration of theprinciple of the present invention.

1.-4. (canceled)
 5. A method doing business comprising the steps of: a.identifying owners of secured promissory notes willing to sell theirsecured promissory notes by an online auction; b. entering said ownersinto a contract, the terms of which obligates them to complete the Salesof their respective secured promissory notes; c. pre-arranging a minimumauction price for the secured promissory note that accounts for thesecured promissory note owner's interest and contracted costs and fees;d. placing on the auction portal relevant information about the securedpromissory note and related documents; e. limiting bidding to bidderswho have proven sufficient resources to complete the transaction; f.conducting an auction for the secured promissory note whereby at theauction's conclusion there is a winning bidder; g. arranging for thedelivery of the original secured promissory note, its securityinstrument (trust deed or mortgage), the documentation supporting thevalue of security of the secured promissory note (appraisal), andevidence of ownership (title insurance) to a licensed escrow holder, whoat the conclusion of said auction, will deliver evidence of ownership ofthe original secured promissory note and related documents to thewinning bidder and the appropriate proceeds to said note owner; and h.ensuring the transfer of the winning bidder's purchase funds to theescrow holder.
 6. A method of doing business comprising the steps of: a.identifying a plurality of owners of a plurality of properties, each ofwhich being willing to sell at least one of their respective propertiesvia online auction; b. entering into contracts with the plurality ofowners obligating them to complete the sales of their respectiveproperty's conducted pursuant to the contracts' terms; c. pre-arranginga minimum auction price for their respective properties that accountsfor interest of the respective owner's, transaction costs and fees; d.conducting a plurality of on-line auctions for a plurality of propertieswith a plurality of bidders for the owners' properties.
 7. A method ofdoing business according to claim 6 wherein said property is a securedpromissory note and wherein said method includes the step of arrangingfor the delivery of evidence of ownership of each secured promissorynote to the respective winning bidder.
 8. A method of doing businessaccording to claim 6 wherein method also includes the step of placing onthe auction portal relevant information about the secured promissorynote and related documents.
 9. A method of doing business according toclaim 6 wherein method further includes the step of limiting bidding tobidders who have proven resources to complete the transaction.
 10. Amethod of doing business according to claim 6 wherein method includesthe step of holding and completing the auction for a defaulted securedpromissory note immediately preceding the foreclosure, trustee, marshal,judicial or any other court ordered sale of the note's underlyingsecurity.